October 23, 2007
CITY OF CAMDEN, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
JAMES JOHN FORMOSA, DEFENDANT-APPELLANT/ CROSS-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-7336-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 25, 2007
Before Judges Skillman, Winkelstein and Yannotti.
These appeals arise out of a condemnation action filed by the City of Camden (City) on November 12, 2002, to acquire certain property owned by defendant, James John Formosa. Following a jury trial, final judgment was entered declaring that defendant was entitled to receive $235,000 as just compensation for his property.
Defendant appeals from: 1) an order dated March 29, 2004, which denied defendant's motion to bar the entry of a final judgment of condemnation and the appointment of commissioners; 2) an order barring the testimony of plaintiff's expert; 3) the denial at trial of defendant's motion to dismiss on the ground that the City failed to negotiate in good faith before commencing the condemnation action; and 4) an order dated October 10, 2006, denying defendant's motion for reimbursement of certain real property taxes. The City cross-appeals from an order entered on February 18, 2005, which denied the City's motion for reconsideration of an earlier order that denied its motion for possession of the property.
In December 2000, a group of the City's residents and other interested persons formed a "working group" to explore ways to address the economic decline of the Fairview Neighborhood section of the City. The "working group" invited the New Jersey Housing and Mortgage Finance Agency (NJHMFA) and the State's Department of Community Affairs (DCA) to participate. On December 26, 2000, a subsidiary of the NJHMFA issued a request for qualifications seeking for-profit developers with project experience in the City to survey properties in the downtown area and the Fairview Neighborhood to determine if they were suitable for multi-family and single family development. In January 2001, RPM Development Group (RPM) was selected and charged with preparing a feasible plan for redevelopment of the area.
On April 12, 2001, the City Council adopted Resolution MC-01:277 requesting the planning board to conduct a study to determine whether the Fairview Neighborhood should be designated as an area in need of development and, if so, prepare a redevelopment plan. On the same date, the City Council adopted Resolution MC-01:278, which designated the Council as the entity responsible for implementing the redevelopment plan. The resolution noted that RPM had offered to enter into a contract with the City to act as redeveloper. The resolution stated that upon adoption of the redevelopment plan, the City would enter into a contract with RPM for the "planning, re-planning, construction, or undertaking of any project and/or redevelopment work in the Proposed Redevelopment Area."
After the adoption of Resolutions MC-01:277 and MC-01:278, the planning board had a map prepared delineating the boundaries of the proposed redevelopment area. The planning board also obtained a report from Schoor DePalma, Inc., an engineering and design firm, indicating that an investigation had been undertaken and the Fairview Neighborhood was an area in need of redevelopment under N.J.S.A. 40A:12A-5.
On October 9, 2001, the planning board held a public hearing and adopted a resolution recommending that the City Council designate the Fairview Neighborhood as an area in need of redevelopment. On October 11, 2001, the Council enacted Ordinance MC-3704 and adopted the redevelopment plan for the Fairview Neighborhood, as recommended by the planning board. On December 6, 2002, the Council enacted Ordinance MC-3715, which approved the redevelopment plan for the Fairview Neighborhood.
Defendant's property is located at 1276 Collings Road in the Fairview Neighborhood of the City. The property is identified as Block 721, Lot 13, on the City's tax map. On January 3, 2002, Richard E. Polton (Polton), the City's appraiser, inspected defendant's property and thereafter issued an appraisal report valuing the property at $155,000 as of that date.
In his report, Polton noted that the property consisted of .46 acres of land area, with a one-story warehouse that was built around 1920 and was in "average condition." Polton used the income capitalization and sales comparison approaches to value the property. In his income capitalization calculation, Polton estimated the rent generated by the warehouse building based on leases of comparable industrial warehouse properties in the vinciity. Polton concluded that the "effective" gross rental income from the property was $27,775.
By letter dated June 3, 2002, the City's attorneys offered defendant $155,000 for the property based on Polton's appraisal. The letter stated that the City preferred to acquire the property by means of a "mutually acceptable agreement." Defendant obtained from Paul Salvo, Jr. a statement of the replacement cost of the warehouse located on the property. The price quotation is set forth in a document dated October 8, 2001. Salvo stated that the replacement cost for the warehouse was $496,500.
It appears that the parties did not engage in any negotiations, and the City filed its complaint on November 12, 2002. The judge entered an order of judgment dated February 24, 2004, declaring that the City had validly exercised its condemnation power, and appointed commissioners to determine just compensation. By order dated March 29, 2004, the judge denied defendant's motion to bar the entry of final judgment and the appointment of commissioners.*fn1
The City filed a declaration of taking on August 6, 2004 to obtain possession of the property. The parties agreed to the entry of a consent order dated August 11, 2004, which stated that upon deposit of $155,000 with the Clerk of the Superior Court, the City would be entitled to exclusive possession of the property.
The City deposited the monies and in September 2004, defendant moved to withdraw the funds. Defendant then claimed that there had been a misunderstanding concerning the terms of the agreement. By order dated October 21, 2004, the judge denied defendant's motion to withdraw the funds and vacated the consent order.
In November 2004, the City filed a motion seeking an order granting it immediate possession of the property. The motion was denied by order dated December 3, 2004. The City filed a motion for reconsideration, which was denied by order dated February 18, 2005.*fn2
Dissatisfied with the commissioners' award, defendant demanded a trial de novo in the Law Division. The matter was tried to a jury on July 27, 28, and 29, 2005. The jury found that defendant was entitled to compensation of $235,000 for his property, and these appeals followed.
While the appeals were pending, the City moved in the trial court for clarification of the court's February 18, 2005 order, and sought a determination that defendant was obligated to maintain liability insurance on the property. We entered an order on August 14, 2006, temporarily remanding the matter to the trial court to consider the motion. Defendant cross-moved for reimbursement of the taxes he paid on the property after title vested in the City.
The judge entered an order dated October 10, 2006, which denied the relief sought by the City and denied defendant's motion for reimbursement of property taxes. The order stated that defendant was obligated to pay real estate taxes while he remains in possession of the property. Defendant thereafter amended his notice of appeal to include a challenge to the October 10, 2006 order.
We first address defendant's contention that the judge erred by barring defendant's expert, Salvo, from testifying at trial.
The determination of whether a witness is competent to testify as an expert is committed to the sound discretion of the trial judge. Carey v. Lovett, 132 N.J. 44, 64 (1993). "Absent a clear abuse of discretion, an appellate court will not interfere with the exercise of that discretion." Ibid. (citing Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 411 (1960)). We are satisfied from our review of the record that the judge did not err in precluding Salvo from testifying at trial.
When a governmental entity takes private property for public use, the property owner is entitled to just compensation. U.S. Const., amend. V; N.J. Const., art I, ¶ 20. The measure of just compensation is the fair market value of the property. Trenton v. Lenzner, 16 N.J. 465, 476 (1954). "Where the whole of a property is taken, the measure of damages is the fair market value of the property as of the date of taking, determined by what a willing buyer and a willing seller would agree to, neither being under any compulsion to act." State by Comm'r of Transp. v. Silver, 92 N.J. 507, 513 (1983). Although all reasonable uses of the property may have a bearing on its fair market value, the most relevant consideration is the property's highest and best use. State v. Caoili, 135 N.J. 252, 260 (1994).
In In re Parking Auth. of Hackensack, 30 N.J. Super. 534, 539 (App. Div. 1954), we held that the trial judge in a condemnation action did not abuse his discretion by precluding the admission of testimony regarding the replacement cost of improvements where the property could be valued using comparable sales. We stated, however, that replacement cost testimony might be warranted where the "improvement was of an unusual kind or description with a value not readily discernible, or . . . there was an absence of comparable sales to indicate comparable values." Ibid.
The Court in State v. Burnett, 24 N.J. 280 (1957), reached a similar conclusion. The Court found that the trial court did not abuse its discretion by admitting replacement cost testimony in a condemnation action because the condemned property was dissimilar to other properties in the area. Id. at 291-92.
Here, defendant offered Salvo to provide an opinion as to the cost of constructing a new warehouse on defendant's property. However, defendant failed to lay the necessary foundation for the admission of this testimony. Salvo is a mason. He has no experience or training in the appraisal of real estate. Salvo's "report" was merely a statement of the cost to construct a new warehouse. Defendant failed to show that his property could not be valued using comparable sales. As pointed out previously, the City's appraisal was based in part on comparable sales.
Even if defendant had established a foundation for the admission of cost replacement testimony, Salvo's opinion was fatally flawed because it did not take into account the depreciation and obsolescence of the warehouse. "[T]he cost of reproduction necessarily 'embodies all of the deficiencies, superadequacies, and obsolescence of the subject building.'" Jersey City Redevopment Agency v. Clean-O-Mat Corp., 289 N.J. Super. 381, 398 (App. Div. 1996) (quoting American Institute of Real Estate Appraisers, The Dictionary of Real Estate Appraisal 254 (2d. ed. 1989)). Moreover, "functional obsolescence in the form of outmoded characteristics associated with age or a failure to keep pace with advancing technology diminishes market value and must be deducted from . . . reproduction cost." Id. at 398-99. Salvo's estimate failed to take into consideration the age of the warehouse or any of its deficiencies. In addition, Salvo provided no explanation for his failure to do so.
We therefore conclude that the judge did not abuse his discretion by barring Salvo's testimony.
Defendant next contends that the City's complaint should have been dismissed because the City failed to comply with N.J.S.A. 20:3-6, which states in pertinent part that: no action to condemn shall be instituted unless the condemnor is unable to acquire such title or possession through bona fide negotiations with the prospective condemnee, which negotiations shall include an offer in writing by the condemnor to the prospective condemnee holding the title of record to the property being condemned, setting forth the property and interest therein to be acquired, the compensation offered to be paid and a reasonable disclosure of the manner in which the amount of such offered compensation has been calculated, and such other matters as may be required by the rules. [Ibid.]
At trial, defendant moved for dismissal of the action, arguing that the City failed to engage in bona fide negotiations because its appraiser did not consider actual rents when he valued the property. The judge ruled that this issue should have been raised earlier when defendant challenged the City's authority to condemn, not at the valuation trial. We agree with the trial judge that defendant should have raised this issue earlier in the case. Nevertheless, we have considered defendant's argument and are convinced it is entirely without merit.
Here, the record shows that in valuing the property, the City's appraiser credited defendant with gross rental income of $27,775, or about $2,300 per month. As noted previously, this amount was arrived at using comparable leases of industrial properties in the vicinity of defendant's property. At trial, evidence was presented which indicated that defendant was receiving rent of $1,100 per month for one-half of the warehouse. Thus, the use by the City's appraiser of rental income based on comparable sales resulted in a higher value for the property than would have been the case if the appraiser had used actual rental income.
In support of this argument, defendant relies on the decision in Casino Reinvestment Dev. Auth. v. Katz, 334 N.J. Super. 473 (Law Div. 2000). In that case, the court dismissed a condemnation action finding that the condemning authority failed to engage in bona fide negotiations because it valued the property using the income capitalization approach but in doing so failed to take into account the actual rents from the property. Id. at 476. The property owners established that the actual rents were more favorable than rents based on comparable leases in the area. Id. at 478. In this matter, the actual rents received by defendant from the warehouse were less than the rental income derived from comparable sales. Thus, defendant's reliance on the decision in Casino Reinvestment Dev. Auth. is misplaced.
We turn to defendant's assertion that the City violated N.J.S.A. 20:3-38 by offering defendant compensation based on an appraisal that valued the property as of January 3, 2002. According to N.J.S.A. 20:3-30, just compensation for condemned property shall be determined as of the date of the earliest of the following events:
(a) the date possession of the property being condemned is taken by the condemnor in whole or in part;
(b) the date of the commencement of the action;
(c) the date on which action is taken by the condemnor which substantially affects the use and enjoyment of the property by the condemnee.
However, N.J.S.A. 20:3-38 provides that when property is "acquired in connection with the development or redevelopment of a blighted area," the value of the property "shall be no less than the value as of the date of the declaration of blight by the governing body upon a report by the planning board."
Defendant argues that the declaration of blight occurred on October 11, 2001, when the Council adopted Ordinance MC-3704 approving the redevelopment plan for the Fairview Neighborhood, as recommended by the planning board. However, at trial, the parties stipulated that the "date of taking" was December 6, 2001, which was the date when the City Council passed Ordinance MC-3715 and adopted the redevelopment plan for the Fairview Neighborhood. At trial, Polton testified that there was no material change in the value of the property from December 6, 2001 to the date of his valuation, January 3, 2002.
Defendant argues that the judge erred because he "offered" evidence that the property had a higher value at the time of taking, based on the amount of financing, the insured value of the property, and the costs of improvements made thereto. However, this evidence was not introduced at trial. Indeed, defendant presented no credible evidence to show that the City offered him less than the value of the property on December 6, 2001, the date the parties agreed was the "date of taking."
We therefore reject defendant's assertion that the City's appraisal failed to comply with N.J.S.A. 20:3-38.
Defendant next contends that the judge erred by denying his motion to dismiss the City's complaint because the City allegedly failed to comply with the Local Redevelopment and Housing Law (LRHL), N.J.S.A. 40A:12A-1 to -49, when it approved the redevelopment plan for the Fairview Neighborhood. Defendant argued that the City violated the LRHL by engaging a redeveloper before the planning board had considered whether the Fairview Neighborhood should be designated as an area in need of development. The judge rejected defendant's argument, concluding that defendant failed to show that the City's actions were arbitrary, capricious, unreasonable, or taken in bad faith.
We decline to address this issue. Defendant is essentially challenging the validity of action taken by the City Council on December 6, 2001, when the Council approved Ordinance MC-3704 which adopted the redevelopment plan for the Fairview Neighborhood, as recommended by the planning board. Defendant also is challenging Resolution MC-01:278, which was adopted on April 12, 2001, and stated that the Council intended to enter into a contract with RPM upon approval of a redevelopment plan.
However, defendant did not raise this issue until after the City filed its complaint in this matter on November 12, 2002. If defendant wished to challenge the Council's action on December 6, 2001, adopting the redevelopment plan, or the Council's approval on April 12, 2001 of Resolution MC-278, pertaining to the contract with RPM, he should have filed an action in lieu of prerogative writs within the time prescribed by Rule 4:69-6. Because defendant failed to file timely challenges to the Council's actions, he could not thereafter seek the dismissal of the City's condemnation action on the basis that the redevelopment plan had been adopted in violation of the LRHL.
We turn to defendant's appeal from the order entered on October 10, 2006, which denied his application for reimbursement of the tax payments made respecting the property after title to the property vested in the City. The judge held that because defendant successfully opposed the City's motion for immediate possession of the property and remained in possession of the premises, he was required to pay all real estate taxes until such time as he transfers possession of the property to the City.
According to N.J.S.A. 20:3-19, upon the filing of a declaration of taking, and the deposit of the award amount, the "right to the immediate and exclusive possession and title to the property described in the declaration of taking shall vest in the condemnor" unless the court upon application and good cause shown, stay[s] the taking of the land or other property or authorize[s] possession to be taken upon prescribed conditions. A property owner who refuses to vacate said property or yield possession and remains in possession more than 20 days after service of notice shall be deemed a trespasser and shall be then liable for rents, issues and profits 20 days after service.
Here, the City filed its declaration of taking on August 6, 2004 and deposited funds to satisfy the condemnation award on or about August 11, 2004. Thus, pursuant to N.J.S.A. 20:3-21(a), title to the property vested in the City on that date, and the City was entitled to immediate possession of the property as of that date. However, defendant refused to vacate the premises and opposed the City's motion for immediate possession. Defendant obtained an order which stayed "the taking of the land or other property" and authorized defendant to remain in possession. N.J.S.A. 20:3-19.
In ruling on defendant's motion for reimbursement of property taxes, the court determined that, because he had been in possession of the premises, defendant was required to pay the real estate taxes on the property. The judge reasoned that defendant should pay the property taxes because he had challenged the City's exercise of its power of eminent domain, and remained in possession of the property. The judge observed that defendant cannot "have it both ways." He cannot challenge "the [C]ity's attempt to condemn the property, but say he's relieved of the responsibility to make property tax payments."
In our view, N.J.S.A. 20:3-19 authorizes the court to require a condemnee to pay property taxes as a condition of remaining in possession of the condemned property after title has passed to the condemnor. We are convinced that the judge did not abuse his discretion by imposing that condition in this case.
Defendant argues, however, that he has an absolute right to reimbursement of his property tax payments pursuant to N.J.S.A. 30:3-26. That statute provides that after the condemnor has paid the acquisition price, or deposited funds in court to satisfy an award of condemnation, whichever date is earlier, the condemnor must reimburse the owner for the pro rata portion of real property taxes paid which are allocable to a period subsequent to the date of vesting title in the condemnor, or the effective date of possession of such real property by the condemnor, whichever is earlier. [N.J.S.A. 20:3-26a(2).]
This statute generally provides that a condemnee is not responsible for real property taxes after title vests in the condemnor. However, this statute does not address the specific situation presented in this matter, where the condemnee challenged the City's exercise of its condemnation power, and obtained an order precluding the City from taking possession of the condemned property.
As we have pointed out, N.J.S.A. 30:3-19 addresses this very situation and allows the court to require the condemnee to pay property taxes on the condemned land as a condition of remaining in possession. In these circumstances, N.J.S.A. 30:3-26a(2) does not require reimbursement of tax payments.
In its cross-appeal, the City challenges the order dated February 18, 2005, which denied the City's motion for reconsideration of an order dated December 3, 2004 denying its motion for immediate possession of the property. The City argues that the judge erred because under N.J.S.A. 20:3-19 it was entitled to possession of the property after it filed its declaration of taking and deposited monies to satisfy the condemnation award.
In view of our determination that the City validly exercised its condemnation power in this matter, and our conclusion that there is no merit to defendant's challenge to to the judgment awarding him compensation in the amount of $235,000, the City must be allowed to take possession of the property at this time. Consequently, the question of whether the judge erred in denying the City's motion for possession in February 2005 is moot.
We therefore affirm the order dated March 29, 2004 denying defendant's motion to preclude entry of a final judgment of condemnation and appointment of commissioners; the final judgment dated August 22, 2005 awarding defendant compensation in the amount of $235,000; and the order dated October 10, 2006, denying defendant's motion for reimbursement of tax payments.
We dismiss the City's cross-appeal from the order dated February 18, 2005, as moot. We remand for entry of an order granting the City the right to immediate possession of the subject property.